New Jersey and New York City employers have been expanding their ranks this year, allowing New Jersey residents to recognize new opportunities as economic growth in both areas continues to pick up steam. In Northern New Jersey, employment growth continues to follow a positive course as companies in New York City are attracted to the region’s lower operating costs and highly educated workforce. This year, companies are on track to add 29,000 employees, representing a year-over-year expansion of 1.4 percent. This will be the largest gain in jobs created since 2000. Job creation has been highest in the leisure and hospitality industry, as well as education and health services sectors, where 12,200 new jobs were created in the first half of the year.

Newly employed professionals in search of affordable housing are opting for rentals in Northern New Jersey, where average rents can be half the cost of the greater New York City area. As a result of this growing demand for Northern New Jersey rentals, developers have expanded the pipeline of multifamily projects to more than 12,000 apartments with completions scheduled through 2017. Developers are on track to deliver over 7,900 apartments this year, representing the widest pipeline and fastest pace of construction in several years. The quick pace of construction will come to fruition this year, with deliveries rising to its highest pace in the last decade. More than two-thirds of construction will center on Jersey City and other parts of Bergen and Hudson counties — especially Hoboken — that provide renters with quick commutes into Manhattan.

The average residential mortgage payment is more than $2,200 per month, whereas the average rent payment is around $1,650 per month. This affordability gap will continue to sustain an environment with a prevalence of renters and will support additional asking rent growth in the near future.

High net absorption will limit change in the multifamily vacancy rate following construction deliveries. In fact, vacancy is projected to fall 20 basis points year over year in 2015. For comparison, strong demand for apartments in the metro enable vacancy in the metro to fall 70 basis points for the quarter and the year. Benefitting from their proximity to New York City, Hudson and Bergen counties post the lowest vacancy rates. In all, 2015 will mark the fourth straight year of multifamily vacancy levels under 4 percent in Northern New Jersey.

Turning to the interplay of supply, demand and vacancy changes at the consumer level, the average effective rent in Northern New Jersey is anticipated to rise to around $1,955 per month through the end 2015, even as deliveries more than double. Hudson and Bergen counties are expected to record above-average rent gains. That said, apartments in Hudson County remain much more affordable than comparable units in New York City, offering rents $1,000 less than those in the city. The attractiveness of the Northern New Jersey rental market has allowed for four consecutive years of effective rent growth, which will continue through the end of 2015 as the rate of deliveries trails behind rental demand levels.

Investors looking to leverage historically low interest rates for greater yields have been actively seeking to invest capital into multifamily assets in the Northern New Jersey metro. Institutional investors targeting newer properties along the Hudson waterfront remain the dominant force in the metro. Additionally, individual investors with knowledge of local markets have become increasingly active in the past year as they search for attractive assets along major transportation corridors. Strong investor activity and rising apartment values have brought out more willing sellers, and, as a result, transaction velocity rose 10 percent during the last year. At the end of second quarter, capitalization rates had declined 20 basis points from the previous four quarters. The anticipated rate hike by the Federal Reserve also contributed to this increase in activity, which has shown no sign of slowing as we head toward the end of 2015.

— By Nat Gambuzza, Vice President Investments, Marcus & Millichap. This article originally appeared in the November/December 2015 issue of Northeast Real Estate Business magazine.